{"id":106267,"date":"2026-06-02T11:17:58","date_gmt":"2026-06-02T05:47:58","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=106267"},"modified":"2026-06-02T11:17:58","modified_gmt":"2026-06-02T05:47:58","slug":"the-end-of-cheap-global-money","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/the-end-of-cheap-global-money\/","title":{"rendered":"The End of Cheap Global Money &#8211; Explained"},"content":{"rendered":"<h2 style=\"text-align: justify;\"><strong>Global Money Latest News<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Reserve Bank of India&#8217;s annual report for 2025-26 has flagged concerns over elevated sovereign bond yields and possible reversal of monetary easing by global central banks, signalling the end of the era of cheap global money and its implications for India.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Understanding the Concept of Government Bonds and Yields<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A government bond is a <\/span><b>debt instrument issued by a sovereign authority to borrow money for a specific period<\/b><span style=\"font-weight: 400;\">.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">In return, the issuer promises to pay a fixed annual interest over the bond&#8217;s life and repay the original borrowed amount at maturity.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Government bonds are considered &#8220;risk-free&#8221; assets as their payments are backed by the sovereign&#8217;s power to tax or print money.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Bond yields, the effective annual interest rate, serve as a benchmark for setting interest rates across other fixed-income securities, establishing the minimum return investors expect for their money over a comparable period.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Quantitative Easing (QE)<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Quantitative Easing is a <\/span><b>monetary policy tool used by central banks to stimulate the economy<\/b><span style=\"font-weight: 400;\">.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Under QE:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Central banks create new money to purchase government bonds and long-term assets from commercial banks.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The objective is to flood the financial system with liquidity.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">It aims to lower long-term interest rates and encourage banks to lend more.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">QE was extensively used after the 2008 Global Financial Crisis and during the COVID-19 pandemic.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>The Era of Cheap Money: A Historical Perspective<\/strong><\/h2>\n<ul>\n<li aria-level=\"1\"><b>Bond Yield Trends in Major Economies<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Over the past two decades, bond yields in major economies have witnessed a dramatic decline. Late 1990s and early 2000s:<\/span>\n<ul>\n<li><span style=\"font-weight: 400;\">US: Over 6%; UK: 5.4%; Japan: 1.7%;<\/span><\/li>\n<\/ul>\n<\/li>\n<li><span style=\"font-weight: 400;\">During the COVID-19 pandemic (2020-21):<\/span>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"3\"><span style=\"font-weight: 400;\">US: 0.9%; UK: 0.4%; Japan: Practically zero<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<li><b>Negative Yields Phenomenon<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Japan even witnessed negative bond yields in 2016-17 and 2019-20, meaning investors were willing to pay the Japanese government to keep their money. Negative yields are possible in scenarios of:<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Deflation (falling prices of goods and services)<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Currency appreciation expectations<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Extreme economic uncertainty, where investors prioritise safety over returns<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Why Money Was Cheap<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">During this period, central banks maintained ultra-low interest rates and pursued aggressive quantitative easing to revive economies battered by:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">2008 Global Financial Crisis; COVID-19 pandemic; Persistent low inflation in developed economies<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This created an environment of abundant global liquidity, with capital flowing freely into emerging markets like India in search of higher yields.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>The Current Scenario: End of Cheap Money<\/strong><\/h2>\n<ul>\n<li><b>Rising Bond Yields: <\/b><span style=\"font-weight: 400;\">Bond yields have risen significantly in 2025-26:<\/span>\n<ul>\n<li><span style=\"font-weight: 400;\">Japan: Average of 1.8% in 2025-26, rising to 2.5% in the current fiscal, with a high of 2.8% in May 2026.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">US: Average of 4.2%, rising to 4.4%, with a high of 4.7%.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">UK: Average of 4.6%, rising to 4.9%, with a high of 5.2%.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><span style=\"font-weight: 400;\">This marks a sharp departure from the near-zero yields that characterised the post-2008 era.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Reasons for Global Money Becoming Expensive<\/strong><\/h2>\n<ul>\n<li aria-level=\"1\"><b>Return of Inflation: <\/b><span style=\"font-weight: 400;\">A series of global disruptions has brought inflation back:<\/span>\n<ul>\n<li><span style=\"font-weight: 400;\">COVID-19 supply chain disruptions (2020-21)<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Russia&#8217;s invasion of Ukraine (2022)<\/span><\/li>\n<li><span style=\"font-weight: 400;\">US tariff actions under President Donald Trump (2025)<\/span><\/li>\n<li><span style=\"font-weight: 400;\">US-Israel versus Iran conflict (ongoing)<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The prospect of further inflation due to higher fuel, fertilizer, and food prices from the West Asia supply shock has made ultra-low interest rates unsustainable.<\/span><\/li>\n<\/ul>\n<\/li>\n<li aria-level=\"1\"><b>End of Quantitative Easing: <\/b><span style=\"font-weight: 400;\">The QE policies that drove cheap money have ended for several reasons:<\/span>\n<ul>\n<li><span style=\"font-weight: 400;\">Inflationary consequences of new money supply growing faster than physical production<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Excessive government borrowing due to artificially low rates<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Unsustainable public debt levels taken on by governments<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The combined effect of high inflation and elevated public debts is now reflected in rising sovereign bond yields globally<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Implications for India<\/strong><\/h2>\n<ul>\n<li aria-level=\"1\"><b>Capital Flow Trends: <\/b><span style=\"font-weight: 400;\">The end of cheap global money has significant implications for India&#8217;s capital flows:<\/span><\/li>\n<li><b>Net Capital Inflows<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">1998-99: $8.3 billion<\/span><\/li>\n<li><span style=\"font-weight: 400;\">2007-08: Record $107.9 billion<\/span><\/li>\n<li><span style=\"font-weight: 400;\">2008-09: Collapsed to $7.8 billion during the financial crisis<\/span><\/li>\n<li><span style=\"font-weight: 400;\">2009-10 to 2023-24: Averaged $67.3 billion annually<\/span><\/li>\n<li><span style=\"font-weight: 400;\">2024-25: Just $18 billion<\/span><\/li>\n<li><span style=\"font-weight: 400;\">First nine months of 2025-26: Net capital outflows of $580 million<\/span><\/li>\n<\/ul>\n<\/li>\n<li><b>Foreign Portfolio Investor (FPI) Outflows: <\/b><span style=\"font-weight: 400;\">A striking trend is visible in FPI flows into Indian equity markets:<\/span>\n<ul>\n<li><span style=\"font-weight: 400;\">From 1998-99 to 2020-21, only two years witnessed net negative inflows: 2008-09 and 2015-16.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Since 2020-21, five out of six years have witnessed FPIs pulling out more money than they put in.<\/span><\/li>\n<\/ul>\n<\/li>\n<li aria-level=\"1\"><b>Narrowing Yield Differential: <\/b><span style=\"font-weight: 400;\">A critical concern is the narrowing yield differential between India and the US:<\/span>\n<ul>\n<li><span style=\"font-weight: 400;\">India&#8217;s 10-year government bond yields: Around 7%<\/span><\/li>\n<li><span style=\"font-weight: 400;\">US 10-year Treasury yields: Around 4.5%<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Current differential: 2.5 percentage points<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Historical decade average: 4+ percentage points<\/span><\/li>\n<li><span style=\"font-weight: 400;\">When adjusted for rupee depreciation and the &#8220;safe-haven&#8221; value of US Treasuries, the effective yield gap becomes even smaller, making Indian assets relatively less attractive to foreign investors.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Challenges for India&#8217;s Economy<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Pressure on capital inflows: Foreign capital may become harder to attract.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Currency pressure: Lower inflows can weaken the rupee.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Higher borrowing costs: Indian companies and the government may face higher costs of raising foreign funds.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Stock market volatility: Reduced FPI flows can affect Indian equity markets.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Current account financing: Persistent current account deficits become harder to finance.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>India&#8217;s Strategic Response<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">To attract foreign capital in this changed environment, India needs to offer a more compelling &#8220;pull&#8221; story rather than relying on the &#8220;push&#8221; from cheap global money. This requires:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Higher GDP and earnings growth prospects.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Macroeconomic stability with controlled inflation and fiscal deficits.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Structural reforms to boost manufacturing and exports.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Deeper financial markets to attract long-term capital.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Policy predictability and investor-friendly regulations.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Enhanced ease of doing business.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Concerns Raised by Experts<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The RBI&#8217;s annual report flagged worries about elevated sovereign bond yields and possible reversal of monetary easing by global central banks.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Experts have described the end of quantitative easing and near-zero interest rates as &#8220;perhaps the single most consequential development in global capital markets&#8221; in recent times.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The combination of persistent inflation and high public debt in developed economies is unlikely to allow a quick return to the cheap money era.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Way Forward<\/strong><\/h2>\n<ul>\n<li aria-level=\"1\"><b>Short-Term Measures<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">RBI interventions to manage currency volatility.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Targeted policy measures to attract FPI flows.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Diversification of funding sources for the government and corporates.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Strengthening forex reserves as a buffer.<\/span><\/li>\n<\/ul>\n<\/li>\n<li aria-level=\"1\"><b>Long-Term Strategy<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Boosting manufacturing exports through PLI and Make in India schemes.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Deepening domestic savings to reduce dependence on foreign capital.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Attracting stable FDI through structural reforms.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Developing bond markets to provide alternatives for foreign investors.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Enhancing competitiveness through labour, land, and capital market reforms.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><b>Source:<\/b> <strong><a href=\"https:\/\/indianexpress.com\/article\/explained\/explained-economics\/global-money-sovereign-bonds-impact-india-10717429\/#:~:text=There%20are%20two%20broad%20explanations,US%2DIsrael%20versus%20Iran%20conflict.\" target=\"_blank\" rel=\"nofollow noopener\">IE<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Global money is no longer cheap as bond yields rise and quantitative easing ends, impacting India&#8217;s capital inflows and economic outlook.<\/p>\n","protected":false},"author":21,"featured_media":106289,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[7898,60,22,59],"class_list":{"0":"post-106267","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"tag-global-money","9":"tag-mains-articles","10":"tag-upsc-current-affairs","11":"tag-upsc-mains-current-affairs-tag","12":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/106267","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/21"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=106267"}],"version-history":[{"count":2,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/106267\/revisions"}],"predecessor-version":[{"id":106284,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/106267\/revisions\/106284"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/106289"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=106267"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=106267"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=106267"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}